This Week's Hot Links: Bring Out the Violins...

1. The New York Times explores the stories on how young hipsters live in Manhattan on non-investment banker salaries (and nope, they don't have trust funds either). Although I make far less than the IBs in the city, I resisted the urge to pull out my violin as I read this story. However, it is a good story to check out for those who 'have' to live in The City and need ways to trim their budgets.


2. And here's a similar story about older "middle class" Americans struggling to "make ends meet." I refer you again to Drew Carey's insight we highlighted http://www.blogger.com/post-create.g?blogID=22424944 for a little balance.



3. The USA Today raises alarm that Generation X is not saving enough. I'm hoping that they're just over-blowing the savings thing--my prediction is that they'll be OK. Otherwise, the "Y Generation" (born between 1980-1999) will be there to bail them out via higher taxes.



4. Free Money Finance profiles a person who got an unpublished discount by..well..asking for it.


5. And if you're still worried about gas prices, CNN Money lists six ways you're probably wasting gas. When I drove, I was guilty of at least four of the six. How many did you do?

How Much Does Your 401(k) Cost?

Investing in Your 401(k) is not free, but because you don't get a bill showing how many fees are withdrawn every quarter (or every year), many don't know they're paying or how much they're paying to invest in their Company's Plan.

And if you don't know, you should work to find out. Admittedly, I don't know exactly how much I pay but I have an idea. If your company allows you to see your 401(k) information online, chances are all you see is fund performance. You don't know that you're paying fees. Our company offers about 12 different funds, and I have 4 major funds in my account. Two are with Vanguard, one with Neuberger and one with American Century. I really had to dig to find out the fees associated with each, because they're not really all that apparent.

These management fees can eat into your returns if you're not careful. Consider the example below:

Fund A:

1-yr return: 5%

5-yr return: 10%

10-yr return: 11%

Management Fee: 2.0%

Fund B:

1-yr return: -5%

5-yr return: 13%

10-yr return: 10%

Management Fee: 0.35%

Fund C:

1-yr return: 33%

5-yr return: 13%

10-yr return: 7%

Management Fee: 0.75%

Think of the management fee as the "cost" of managing your money. Which fund would you choose if you were finding a place to put your money for a long time (5+ years)? Smart money would be in (B) of course. Some investors love to see those high returns in the 1-yr numbers, but it's unproven. Long term returns are what count. Note that although choice (A) may have a higher return, the management fee is deducted from the returns. Also note that your returns should be at or above the S&P 500 long-term average. One more thing: that fee is deducted from your account yearly regardless whether you make money or lose money.

So, if your 401(k) is accessible online with your employer, you should try to get access to the prospectus, which gives all the details on the fund you own. (Or, go to the fund's website) and download it from there. Inside you should look for the management fee section, which will give upfront cost (usually) of owning that fund. Some of the older funds may charge fees as high as 2-3% of your account balance, while others (like Vanguard) charge very low management fees.

Frugal or Cheap? Let's Be Real.

Through my own financial journey I have made some missteps and some milestones. One of the evolutions that I go through all the time is making a choice on whether my purchasing and saving decisions are an example of being frugal or being cheap. The best way to measure this, in my opinion, is to use common sense (well, perhaps uncommon sense now).

For instance:

If you buy quality store brands instead of the national brand when shopping, then this would be an example of being frugal.

However, if you buy substandard store brands just to “save money,” that’s being cheap. The idea of being fiscally responsible is to increase sound purchasing decisions and reduce silly ones. The idea is to get decent, quality products for the best price for you.

One more thing--if the money you save is actually saved, rather than being spent on frivolous purchases you wouldn’t have made if you didn’t have the savings. (Because the chances of you actually depositing the saved money in your bank account are minimal). Perhaps you can start a “money storage envelope” and put the savings in there when you get home—then put the envelope in an out-of-sight out of mind place like a home safe or between the books on your bookshelf (Chris Rock may be right), or just somewhere where you won’t be inclined to grab the cash and go. Many of you probably have a loose change jug/jar already, so an envelope may not be a far reach for you.

Bottom line: If you are budgeting correctly (meaning you are spending less than what you make rather than spending at or above your income), and you are regularly contributing to retirement and have no need to free up cash flow, then you most likely know what is a “being cheap” purchase versus being fiscally responsible. But there are extremes in both directions—if you plan to make decisions based on “saving money,” then make sure you actually save it.

See you next week!

This Week's 5 Hot Links

1. An ATM scam story has made small ripples across some places in California, where a “skimmer” is attached to ATM machines and can steal your card info. It’s doesn’t appear to be all that serious, but Cali readers should be on guard.

2. If you haven’t noticed, those much-publicized economic stimulus checks are already arriving in bank accounts electronically for those of you who received tax refunds via direct deposit.

3. And already, (as we mentioned before) tourist locations and stores are offering deal, after deal, after deal to make sure you don’t hold on to it too long.

4. If the economic slowdown is really hurting your budget, The Street suggests stocking up on non-perishables. If you’re single, it might not make much difference, but hey it depends on you.

5. And the blogger over at the highly recommended Free Money Finance gives some high-school based tips for shopping smarter.

Enjoy your week guys. Spring is finally arriving here in New York.